An interesting question at the juxtposition between law and business risk. A declared homestead recorded before perfection of a judgment lein or an abstract of judgment protects certain homestead equity from levy by the judgment creditor. If there is excess equity, the property may be sold to satisfy the judgment, and the debtor keeps the amount exempted under the homestead. As a matter of law, if the homestead is $75K and the net sales proceeds are $75K, then the judgment cannot attach to the sale proceeds and the homestead owner (debtor) is free to take the money and reinvest it in another residence within 6 months. But, that is the legal side - the busienss side is another story. On the business side, a title company will not get involved in that legal analysis and the risk. So, the buyer’s title company will make the judgment an exception to the policy which essentially kills the deal. No ordinary buyer and no lender will accept title with a preexisting recorded abstract of judgment. There are only three ways to get rid of the judgment so as to be able to pass marketable title to a buyer: 1) a voluntary removal of the judgment by the creditor; 2) a bankruptcy order discharging the debt and removing the lien to the extent it interferes with the homestead exemption, and 3) a judgment for quiet title filed in State court.
Richard A. Rodgers, Esq.
200 N. Westlake Blvd. Ste 201
Westlake Village, CA 91362
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